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Italy Sells EU7 Billion of Bonds, Demand Weakens From May Sale

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June 28 (Bloomberg) -- Italy faced weaker demand today at a sale of 3- and 10-year bonds worth 7 billion euros ($8.65 billion), pushing yields on its traded debt higher.

The government auctioned 3.5 billion euros of securities maturing in 2020 with investors bidding 1.29 times the amount of 10-year debt on offer, that’s down from the 1.37 times at the May 28 sale. Italy also sold 3.5 billion euros of three-year bonds with a bid-to-cover ratio of 1.39 times, lower than the 1.52 times at the previous sale.

“At first sight, there are low bid-to-cover ratios,” Wilson Chin, a fixed-income strategist at ING Groep NV in Amsterdam said in an e-mailed message. “The most important thing and positive for the market is the fact that the auctions are done and at the maximum amounts.”

Italy sold the 10-year debt today to yield 4.09 percent compared with 4.07 percent at the May sale. The three-year bond was priced to yield 2.33 percent, down from 2.35 percent at the May auction.

The yield premium, or spread, that investors demand to buy Italian 10-year bonds over comparable German bunds, the European benchmark, widened by 10 basis points to 156 basis points as the yield on Italy’s 10-year bond gained the same amount to 4.19 percent.

Last month the government led by Prime Minister Silvio Berlusconi passed spending cuts worth 24.9 billion euros ($30.15 billon) aimed at cutting Italy’s deficit to 2.7 percent of gross domestic product in 2012. The $2.1 trillion economy has the Euro region’s largest public debt at 115.8 percent of GDP and must finance more than 150 billion euros in maturing bonds this year.

To contact the reporter on this story: Lorenzo Totaro in Rome at ltotaro@bloomberg.net

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net

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